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- EUR/GBP holds steady around 0.8810 in Tuesday’s early European session.
- Subdued GDP growth and a gradually loosening labor market support the case for the BoE to lower rates.
- ECB policymakers have expressed a cautious stance, supporting the Euro.
The EUR/GBP cross flat lines near 0.8810 during the early European session on Tuesday. Nonetheless, recent weak UK Gross Domestic Product (GDP) data has pressured the Bank of England (BoE) to potentially cut rates, which might drag the Pound Sterling (GBP) lower against the Euro (EUR). The UK Consumer Price Index (CPI) and Producer Price Index (PPI) reports will be the highlights later on Wednesday.
Market pricing suggests a high probability that the BoE will reduce the interest rates to 3.75% in December due to subdued GDP growth and a gradually loosening labor market. Recent data showed that the UK Unemployment Rate rose to 5%, its highest since early 2021. Meanwhile, wage growth continued to slow, signaling a loosening labor market.
While market sentiment favors a December rate cut, the decision will depend on incoming economic data, including the upcoming Autumn Budget and inflation figures. The headline UK CPI is expected to show a rise of 3.6% YoY in October, while the core CPI is projected to show an increase of 3.4% YoY during the same period. A surprise upside for UK inflation data could boost the GBP and create a headwind for the cross in the near term.
The European Central Bank (ECB) has kept its key interest rates unchanged since June 2025, with traders expecting this pause to last into the next year. The cautious stance of the ECB could provide some support to the EUR against the GBP. According to a Reuters report from September 2025, analysts anticipate that the ECB’s rate-cutting cycle will end amid a stable economic outlook.
